You may be thinking that this article is all about how to hide money from your spouse – and it is, but not for the reasons you may be thinking. If you are happily married and have decided to hide money from your spouse as a technique to save more money or protect your marital assets, that’s one thing. But if you are attempting to hide money from your spouse in an effort to obtain more assets in your divorce, you are committing fraud – and that could land you in legal hot water.
So the point of this article is really to highlight the various ways that people attempt to hide money in their divorce so that you can be aware of these techniques and look out for them in your own divorce case.
1. Your Spouse Hides their Income from You
If your spouse works for a company that uses direct deposit (which is pretty much any company) or else is self-employed, than this is a fairly easy and common thing to do.
Basically, your spouse would divert a small amount of their income into a separate bank account that you are unaware of. This frequently happens when one spouse receives a pay increase so as not to raise any red flags about what they are doing. This is a frequently used financial planning technique to divert funds into separate bank accounts that each have a separate purpose (such as an emergency fund, debt payments, taxes, etc.)
To determine if your spouse is doing this, you will need to see their paystubs. But this is a problem in and of itself, since many paystubs are issued electronically these days and are emailed to the employee. You may need to start the divorce process (and get the required financial disclosures) to determine whether your spouse is employing this technique.
2. Your Spouse Overpays the Taxman
The vast majority of married couples will file joint tax returns. But that doesn’t mean they have to. It may make sense to file separately if one of the following situations apply:
- If both you and your spouse work and earn about the same income, then filing separately will keep you in a lower tax bracket;
- If you will only qualify for some special tax deductions if your adjusted gross income is below a certain threshold, then filing separately makes sense; or,
- If your spouse has tax debt or past due child support payments that you don’t want to be held responsible for then you should file separately.
You don’t need your spouse’s permission to file separately. You can simply tell them that you have decided to file separate and refuse to sign a joint return. Then they will be forced to file separately as well. If you make the decision to do this, you will need to plan ahead and ask your HR department to increase your tax withholding. You can do this by completing a new W-4 form, which is typically completed when you were hired but can be updated at anytime. By doing this, you can have more money withheld from your paycheck so that you will receive a larger refund when you file your taxes and this can then be sent to a separate bank account.
What to do if you think your spouse is using this strategy?
It will become fairly obvious that your spouse may be using this strategy if either they 1) inform you that they want to file separate tax returns or 2) you start to see changes to the amount of money that is withheld from their paychecks. A lawyer can assist with this, as they will be scrutinizing your spouse’s earnings and looking for changes to their income over time. If we see that your spouse’s earnings haven’t changed, but their net take-home is decreasing, or that their income is increasing and their take-home is staying the same, then we might want to ask more questions about that.
In addition, a lawyer can ask for employment records from your spouse’s employer, which will include copies of the W-4 forms that your spouse has submitted.
3. Your Spouse Gets Lots of Cash Back
One of the easiest and most common ways to hide money is for your spouse to get cash back whenever they go to the grocery store by using their debit card. Although it takes time, $10 or $20 extra every time you go to the grocery store will add up over the course of several months. And as long as your spouse doesn’t check the receipts, you’ll have no issues.
How to find out if your spouse is using this strategy?
If your spouse is using this strategy, you a likely the primary wage-earner and have cut off any access to funds for your spouse. You’ve got bigger things to worry about than your spouse hiding cash so that they can hire a lawyer (which is the primary reason most spouses do this). But if you somehow are able to find a bunch of receipts that show cash back for your spouse, then you can ask your spouse about it, but chances are this strategy will be almost impossible to trace.
4. Your Spouse Rents a Safe Deposit Box
Renting a safe deposit box is a fairly common practice. They are available at most major banks, and can be used to stash cash, prepaid debit cards, and extra credit cards. Not only that, nobody needs to know what is inside the box – even the bankers are not permitted to know the contents.
Many websites and other forums will tell you that putting cash in a safe deposit box is a poor practice, and possibly even illegal. However, this article from the FDIC Consumer News says only that “you’re better off stashing your cash in a bank deposit account, like a savings account or certificate of deposit, than in a home safe or a safe deposit box.” This is primarily because “cash that’s not in a deposit account isn’t protected by FDIC insurance,” says Luke W. Reynolds, Chief of the FDIC’s Community Outreach Section, and a safe deposit box is not a deposit account.
Although cash in a safe deposit box is virtually untraceable, there will be a record that you have the box, you will have to pay a fee to rent it (between $15 to $25 per year), and you need to make sure to hide the key from your spouse as well.
When and Why Would You Hide Money From Your Spouse?
Aside from the numerous ways to hide money from your spouse, you may be wondering, at what point and in which situations is this an option that you should consider?
People decide to stash away cash for a variety of reasons. Even if you are happily married, you may want the piece of mind that comes from knowing that you will have a financial cushion in event that things start to deteriorate. Or in other situations, you begin to sense that a separation or divorce is coming in your future and you want to be prepared financially should that happen.
How Much Money is Enough?
When we are talking about stashing cash, we aren’t talking about money to buy a few groceries, or even a single night at a hotel room. We are talking about enough money so that you can leave the marital residence if necessary, and possibly even hire a lawyer. In many cases, this is somewhere between $5,000 and $10,000.
However, you need to be aware that holding this amount of cash – while appropriate in some situations (such as where there is domestic violence, or where you are the dependant spouse without an income), may be more trouble than it is worth in others (such as if you would be tempted to spend the money and have a hard time saving, or in situations where it would be impossible to hide this cash from your spouse). Regardless of your situation, you will want to think carefully about how you will go about “stashing cash” before you move forward with your plan.
Do You Need to Be More Actively Involved in Your Family Finances?
One way to protect yourself against your spouse hiding money from you is to take an active role in your family finances. In many households, one spouse is primarily in charge of handling the money. This means they take charge of the checkbook, pay the bills, and invest any extra cash. If you are not actively involved in these activities, perhaps it is time that you became more involved.
With regards to bank accounts, you need to be aware of all bank accounts that have your name associated with them. This means that you should have online usernames and passwords for any bank accounts, credit cards, investment accounts, etc. that your name is connected to. You should also talk to your spouse about their retirement plans and be aware of how much money your spouse earns and puts away towards retirement. In addition, if your spouse has access to any other perks or benefits, such as bonuses, stock options or stock grants, you should be aware of those benefits as well.
If your spouse is unwilling to share this information with you, then as they say in space, “Houston, we have a problem.” A marriage based on deceit and the withholding of information is destined for failure unless something changes.
So long as you are aware of the financial picture for your household, you will have a much easier time understanding what is available when it is time to split assets in your divorce.
If you decide to ignore what is going on with your families’ finances, then when the time comes for you to separate you may find yourself at a severe disadvantage. We’ve seen many cases where one spouse trusts that the other spouse has the finances covered, has been saving appropriately, and that they have amassed some degree of wealth. Imagine their surprise when they find out that the family has been living off of credit cards, and that they are on the verge of filing for bankruptcy?
There is no scenario where it isn’t a smart move to take an active role in what is going on financially within the family.